John Deere Committed to Those Linked to the Land Investor Presentation

Transcription

1 John Deere Committed to Those Linked to the Land Investor Presentation Deere & Company July 2013

2 Safe Harbor Statement & Disclosures This presentation includes forward-looking comments subject to important risks and uncertainties. It may also contain financial measures that are not in conformance with accounting principles generally accepted in the United States of America (GAAP). Refer to Deere s reports filed on Forms 8-K (current), 10-Q (quarterly), and 10-K (annual) for information on factors that could cause actual results to differ materially from information in this presentation and for information reconciling financial measures to GAAP. Guidance noted in the following slides was effective as of the company s most recent earnings release and conference call (15 May 2013). Nothing in this presentation should be construed as reaffirming or disaffirming such guidance. This presentation is not an offer to sell or a solicitation of offers to buy any of Deere s securities. 2

3 Table of Contents Slide # John Deere Strategy 4 Foundational Success Factors 9 Global Markets and Opportunities 18 John Deere Financial Services 38 John Deere Power Systems 44 Market Fundamentals 48 Appendix 54 3

4 John Deere Strategy

5 * * * SVA: Shareholder Value Added 5

6 The John Deere Strategy Foundational Success Factors Exceptional Operating Performance - Equipment Operations 29.4% OROA* in % 30% 25% 20% 15% 10% % , adjusted*** % % 12% OROA (SVA** Neutral) 5% % % 80% Low 100% Normal % of Normal Volume * OROA: Operating Return on Operating Assets ** SVA: Shareholder Value Added *** Excludes fiscal 2009 expenses related to goodwill impairment and voluntary employee-separation, for reconciliation to GAAP see 2009 OROA* Reconciliation to GAAP slide in Appendix. 120% High 6

7 $ Millions The John Deere Strategy Foundational Success Factors Exceptional Operating Performance - Equipment Operations Higher Net Cash Flow, More Consistently 3,500 Adoption of SVA* Model 3,000 2,500 Sale of Trade Receivables to Credit 2,000 1,500 1, Over $7.5 billion in Pension/OPEB contributions, * SVA: Shareholder Value Added 7

8 SVA ($ millions) The John Deere Strategy Foundational Success Factors Disciplined SVA* Growth - Equipment Operations SVA Journey, ,800 2,400 Adoption of SVA Model 2,000 1,600 1, ,200-1, * SVA: Shareholder Value Added Note: For reconciliation of SVA to GAAP, please see SVA* Reconciliation to GAAP slide in Appendix 8

9 Foundational Success Factors Building on Core Strengths That Have Guided Our Success

10 $ Millions Asset Management Dramatic Reduction in Asset Intensity Avoided ~ $7.5 billion in working capital in 2012 vs Receivable level in 2012 consistent with 1998, with almost 3x the sales Quarterly Receivables & Inventory as a % of Previous 12 Months Sales 60% $40,000 Trade Receivables and Net Sales 55% $35,000 50% 45% Prior Year Current Year $30,000 $25,000 40% $20,000 35% $15,000 30% $10,000 25% $5,000 20% * $0 Trade Receivables Net Sales *Through 2 nd quarter

11 $ Thousands Productivity Improvement ~ 6% CAGR over 30 Years Deere s net sales and revenues per employee have increased at a CAGR of ~ 6% over last 30 years $600 Net Sales and Revenues per Employee $500 $400 $300 $200 $100 $

12 Investment in New Products and Technologies $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 R&D as Percent of Net Sales % 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Deere R&D $ Deere % Competitor A % Competitor B % Competitor C % Source: Deere & Company and competitor SEC filings 12

13 Net Sales by Product Category Equipment Operations - Fiscal Year 2012 Agriculture & Turf $27.1B Construction & Forestry $6.4B Turf Other Commercial Worksite Products Other Large Ag Forestry Small Ag Construction 13

14 Deere Use-of-Cash Priorities Cash from Operations Committed to A Rating Manage the balance sheet, including liquidity, to support a rating that provides access to low-cost and readily available short- and long-term funding mechanisms Reflects the strategic nature of our financial services operation Fund Operating and Growth Needs Fund value-creating investments in our businesses Common Stock Dividend Consistently and moderately raise dividend targeting a 25%- 35% payout ratio of mid-cycle earnings Share Repurchase Consider share repurchase as a means to deploy excess cash to shareholders, once above requirements are met and repurchase is viewed as value-enhancing 14

15 Share Repurchase As Part of Publicly Announced Plans Cumulative cost of repurchases Q2013: Amount remaining on May 2008 authorization of $5 billion: ~ $9.5 billion ~ $2.2 billion 30 April 2013 period ended shares: ~ million 2Q2013 average diluted shares: Shares repurchased Q2013: ~ 3.9 million ~ million Average repurchase price Q2013: $57.70 Actual Shares Repurchased* (in millions) Total Amount** (in billions) $ $ $ $ $ $ $ $ $ YTD 3.3 $0.3 * All shares adjusted for two-for-one stock split effective 26 November 2007 ** Rounded totals for each period sum may not tie to cumulative cost of repurchases Q

16 '03 Q1 Q2 Q3 Q4 '04 Q1 Q2 Q3 Q4 '05 Q1 Q2 Q3 Q4 '06 Q1 Q2 Q3 Q4 '07 Q1 Q2 Q3 Q4 '08 Q1 Q2 Q3 Q4 '09 Q1 Q2 Q3 Q4 '10 Q1 Q2 Q3 Q4 '11 Q1 Q2 Q3 Q4 '12 Q1 Q2 Q3 Q4 '13 Q1 Q2 Q3 Deere Quarterly Dividends Declared* Q Q $0.60 $0.50 $0.46 $0.51 $0.40 $0.35 $0.41 $0.30 $0.20 $0.10 $0.11 $0.14 $0.16 $0.20 $0.22 $0.25 $0.28 $0.30 Dividend raised 82% since launch of the revised John Deere Strategy in 2010** $0.00 * Adjusted for 2 for 1 stock split on 26 November 2007 ** See slide 5 for John Deere Strategy 16

17 $ Millions Sources and Uses of Cash Fiscal Equipment Operations $27,000 $24,000 $668 = Source of Cash = Use of Cash $21,000 $6,530 $18,000 $1,081 $101 $15,000 $12,000 $19,326 $3,967 $9,000 $6,000 $3,000 $0 $4,287 Beginning Cash & Cash Equivalents (10/31/03) Cash From Operations Divestitures, net of Acquisitions Capital Expenditures Investment in Financial Services Net Change in Debt and Intercompany Balances $7,720 ~60% of cash from operations returned to shareholders Dividends Share Repurchase, net of Common Stock Issuances (1) Other includes proceeds from maturities and sales of marketable securities and purchases of marketable securities and reconciliation for non-cash items including excess tax benefits from share-based compensation and the effect of exchange rates on cash and cash equivalents $974 Other (1) $3,908 Ending Cash & Cash Equivalents (10/31/12) Source: Deere & Company SEC filings 17

18 Global Markets and Opportunities

19 $ Millions Growing Global Presence FY 2012 equipment net sales outside U.S. & Canada over 4x the level in FY 2000 $14,000 Net Sales Outside U.S. and Canada 50% $12,000 45% $10,000 $8,000 $6,000 $4,000 $2,000 40% 35% 30% 25% $ % Net Sales Outside U.S. & Canada % of Total Net Sales 19

20 Global Growth Major Equipment Factory Investments Waterloo, IA, USA A&T Division Foundry Waterloo, IA, USA A&T Division Ag Tractors Domodedovo, Russia A&T and C&F Division Tractors Combine Harvesters Orenburg, Russia A&T Division Seeding Equipment Tillage Equipment Valley City, ND, USA A&T Division Seeding Equipment Tillage Equipment Des Moines, IA, USA A&T Division Spraying Equipment Cotton Harvesting Equipment Tillage Equipment Seeding Equipment Indaiatuba, Brazil C&F Division Backhoe Loaders 4WD Loaders Moline, IL, USA A&T Division Planting Equipment Moline, IL, USA Cylinder Division Hydraulic Cylinders Davenport, IA, USA C&F Division Articulated Dump Trucks 4WD Loaders Motor Graders Skidders Wheeled Feller Bunchers Harbin, China A&T Division Combine Harvesters Tractors Sprayers Irrigation Products Tianjin (TEDA), China C&F Division 4WD Loaders Excavators Tianjin (TEDA), China John Deere Power Systems Engines Rosario, Argentina A&T Divison and John Deere Power Systems Engines Tractors Combines Indaiatuba, Brazil (JV) C&F Division Excavators Pune, India A&T Division Engines Transmissions Tractors Dewas, India A&T Division Tractors New Factories Major Expansions or Modernizations 20

21 Net Sales by Major Markets Equipment Operations U.S. & Canada 9% CAGR $15.1 $14.8 $13.8 $13.0 $17.4 $20.8 Western Europe 2% CAGR $3.9 $4.6 $4.4 $4.3 $3.4 $3.4 Central Europe & CIS 11% CAGR $1.9 $1.4 $1.7 $1.0 $0.7 $0.7 Asia, Africa & Middle East 21% CAGR $0.8 $1.1 $1.2 $1.4 $1.9 $2.1 Central & South America 18% CAGR $3.6 $3.6 $2.6 $2.6 $1.6 $1.8 Australia & New Zealand 20% CAGR $0.4 $0.6 $0.6 $0.6 $0.8 $1.0 21

22 U.S. and Canada Factory Locations British Columbia, Canada Log Loaders & Specialty Products Alberta, Canada Remanufactured Components North Dakota, USA Air Seeding Equipment Electronics Wisconsin, USA Lawn & Garden Equipment Utility Vehicles Golf & Turf Reel Mowers Iowa, USA Cotton Harvesting Equipment Planting Equipment Spraying Equipment Tillage Equipment Ag Tractors Components Foundry Engines Hay & Forage Equipment Articulated Dump Trucks 4WD Loaders Motor Graders Skidders Wheeled Feller Bunchers Backhoes Compact Tracked Loaders Crawler Dozers High-Speed Dozers Knuckleboom Loaders Skid Steer Loaders Tracked Feller Bunchers Tracked Harvesters Illinois, USA Combine Harvesters Headers Planting Equipment Hydraulic Cylinders Tennessee, USA Lawn Tractors North Carolina, USA Commercial Mowers Golf & Turf Mowers Utility Vehicles Hydraulic Excavators Georgia, USA Utility Tractors Compact Utility Tractors California, USA Satellite Receivers Kansas, USA Power Transmission Equipment Missouri, USA Remanufactured Components Louisiana, USA Sugarcane Harvesting Equipment Tractor Loaders Scrapers Cotton Strippers 22

23 U.S. and Canada Growth-Related Announcements November 2012 $58 million investment at Moline, IL planter factory to enhance efficiency and quality Waterloo Works Capacity Expansion 2008 to % June 2012 $47 million investment at Moline, IL cylinder operations to expand manufacturing capacity 15% 25% March 2012 Final Tier 4/Stage IV solution to combine proven EGR Interim Tier 4 platform with customized selective catalytic reduction (SCR) system March 2012 $70 million investment at Waterloo, IA factory to expand production of large farm tractors by 10% January 2012 Strategic agreement with MacDon to manufacture self-propelled windrowers December 2011 $85 million in capital improvements at Des Moines, IA factory to expand production of selfpropelled sprayers Deere & Company Forecast as of 15 May

24 EU 27 Factory Locations Horst, The Netherlands Spraying Equipment Zweibrücken, Germany Combines & Forage Harvesters Saran, France Engines Arc-les-Gray, France Forage Equipment Balers Ag Loaders Joensuu, Finland Wheel Forwarders Wheel Harvesters Forestry Attachments Stadtlohn, Germany Headers Gummersbach, Germany Walk-Behind Mowers Bruchsal, Germany Tractor, Harvesting & Forestry Cabs Madrid, Spain Components Mannheim, Germany Tractors 24

25 EU 27 Growth-Related Announcements October 2012 Grand opening of new Polish branch headquarters and training center Represents a $26 million investment in the region November 2011 Awards received at Agritechnica R Tractor of the Year R tractor Machine of the Year Five silver medals June 2011 Largest new product introduction for Region 2* Over 100 new products 80% of large tractor and combine models new or updated Focus on Dealer of Tomorrow strategy May 2011 John Deere and Kuhn Group sign strategic cooperation Provides large square balers into Region 2* in 2012 * Region 2: EU 27, CIS (including Russia), Mediterranean countries in Africa, and the Near and Middle East 25

26 Brazil Factory Locations Catalão, Brazil Sugarcane Harvesters Sprayers São Paulo, Brazil (JV) Components Indaiatuba, Brazil Backhoe Loaders 4WD Loaders Horizontina, Brazil Combine Harvesters Planters Indaiatuba, Brazil (JV) Excavators Montenegro, Brazil Tractors Deere & Company Forecast as of 15 May 2013 Existing Under Construction 26

27 Brazil Growth-Related Announcements October 2011 Two new factories in São Paulo to manufacture construction equipment Solely-owned Deere factory Backhoes and four-wheel-drive loaders Partner with Hitachi in second factory Excavators Expect production to begin in 2014 Agriculture portfolio and dealer expansion 50 new or updated products in 2010/2011 Dealer locations roughly doubled since 2007 Achieved about 6 points of tractor market share in 2-year period - CY 2011 and CY Carta da Anfavea, January 2012 and January 2013 Deere & Company Forecast as of 15 May

28 CIS Factory Locations Orenburg, Russia Seeding Equipment Tillage Equipment Domodedovo, Russia Tractors Combine Harvesters 28

29 CIS Growth-Related Announcements November 2011 Orenburg, Russia Move existing operations to a new, larger facility Increase available manufacturing space by ~ 600 percent Expand product offering from four to fifteen models Production commenced January 2013 March 2011 Domodedovo, Russia Double manufacturing space at the factory Expand capacity for existing products 29

30 China Factory Locations Jiamusi, China Large Combine Harvesters Corn Pickers Cotton Pickers Harbin, China Combine Harvesters Tractors (150+ hp) Sprayers Irrigation Products Tianjin (TEDA), China 4WD Loaders Excavators Tianjin (TEDA), China Engines ( hp) Tianjin (TEDA), China Tractors ( hp) Transmissions Ningbo, China Tractors (28-70 hp) Small Combine Harvesters Hydraulic Cylinders 30

31 China Growth-Related Announcements May 2011 New engine facility in Tianjin ~ $60 million investment Initial occupancy July 2012 Production commenced April 2013 Construction Equipment Tractors & Drivetrain Engines Product Test (PV&V) May 2011 New factory in Harbin Office ~ $80 million initial outlay Production commenced November 2012 December 2010 New construction equipment factory in Tianjin ~ $50 million investment Initial occupancy July 2012 Production commenced January 2013 Tianjin Economic-Technological Development Area (TEDA) Site 31

32 India Factory Locations Sirhind, India Combine Harvesters Pune, India Engines Transmissions Tractors (36-75 hp) Electronics Dewas, India Tractors (36-50 hp) Gummidipoondi, India (JV) Side-Shift Backhoes 4WD Loaders (planned production 2014) Deere & Company Forecast as of 15 May 2013 Existing Under Construction 32

33 India Growth-Related Announcements January 2011 New tractor factory in Dewas and expand current tractor facility in Pune ~ $100 million investment Expect production in Dewas to begin in 2013 October 2010 Ashok Leyland John Deere Construction Equipment Company inauguration Production of backhoes commenced in 2011 Four-wheel-drive loader production expected in 2014 September 2010 New combine factory in Sirhind Production commenced February 2012 John Deere has been the largest exporter of tractors from India for past 10 years Deere & Company Forecast as of 15 May

34 Other Regions Factory Locations Kibbutz Beit Hashita, Israel Cotton Picker Components Monterrey, Mexico Rotary Cutters Implements Components Ramos, Mexico Ag Loaders Compact Utility Tractor Loaders Utility Tractor Cabs Hydraulic Cylinders Torreon, Mexico Axles Engines Electronics Saltillo, Mexico Ag Tractors Transaxles Tokoroa, New Zealand Forestry Harvester Heads Rosario, Argentina Engines Tractors Combines Richards Bay, South Africa Articulated Dump Trucks Loaders 34

35 Worldwide Parts Services Supporting the Global Growth of Our Equipment Operations Highlights: Nagpur, India Announced India Parts Distribution Center target to open in 2H 2014 Johannesburg, South Africa New, larger Regional Distribution Center opened 4Q 2012 Rosario, Argentina New, larger Regional Distribution Center opened 4Q 2012 Stockholm, Sweden New, larger Regional Distribution Center serving C&F and A&T opened May 2012 Bruchsal, Germany E-PDC deconsolidation & packaging facility opened Nov 2011 Anchor Parts Distribution Centers Regional Parts Distribution Centers or Depots Distribution Centers under construction 35

36 John Deere FarmSight TM Integrated wireless technology linking the equipment, managers, operators, dealers, and agricultural consultants to provide more productivity and efficiency to a farm or business. Machine Optimization Solutions that get the most out of machinery Use of automation and machine sensors Increased machine uptime, and higher levels of machine productivity, including the impact machines have on crop productivity & input efficiency Logistics Optimization Coordination of field activities and resources Enable fleet management decisions from web enabled devices Machine-to-machine communication for in-field logistics Ag Decision Support Easy data flow between machines and trusted advisors Platform for secure, trusted data sharing Enable proactive management decisions through insights 36

37 John Deere Water Leveraging our leadership in global agriculture to provide innovative and efficient agricultural water management solutions to enable higher crop yields Innovative solutions A leading producer of drip tape/lines worldwide Fully integrated Field Connect soil sensing system Tailored flow/spacing solutions for unique crop/field types Integration of machinery and technology Field Connect provides agronomic decision support which provides insight into key soil and crop requirements (plant, spray, harvest) Field Connect soil information designed to work in concert with Deere s on-farm eco-system Enables increased yields and higher quality crops Improves water use efficiency and reduces grower input costs Partnering with our customers Supported by our dedicated channel partners Focused on optimizing farm operations and crop output Enabling good stewardship of the environment and water resources 37

38 John Deere Financial Services

39 John Deere Financial Services Supporting the Global Growth of Our Equipment Operations New JDF operations: Russia (2012) India (2012) Chile (2012) Thailand (2012) China (2011) Expanding EU-27 coverage to majority of countries Deere & Company Forecast as of 15 May 2013 Owned Operations Bank/Finance Company Partners Retail programs through JDF not currently offered 39

40 John Deere Financial Services $31.9 Billion Owned Portfolio at 31 October 2012 Portfolio Composition by Market Portfolio Composition by Geography Portfolio Composition by Product C&F 13% Latin America 6% Europe 7% Australia 3% Leasing 12% Revolving Credit 8% Canada 12% Ag & Turf 87% U.S. 72% Wholesale / Floorplan 23% Installment Financing 57% Information above includes all Deere lending activities worldwide. John Deere Capital Corporation is the largest lending operation of Deere & Company. 40

41 John Deere Capital Corporation Profitability and Growth Net Income ($ Millions) Administered Portfolio Growth ($ Billions) Write-offs/Average Owned Portfolio 0.70% 0.16% 0.22% 0.29% 0.33% 0.48% 0.12% 0.05%

42 John Deere Capital Corporation Retail Notes 60+ Days Past Due vs. Write-offs Agriculture & Turf 1 Continued extremely low write-offs Average write-offs less than 5 bps over last 10 years Construction & Forestry Extremely low write-offs in 2012 Steady decline in write-offs since % 3.45% 2.95% 2.45% 1.95% 1.45% 0.95% 0.45% 3.95% 3.45% 2.95% 2.45% 1.95% 1.45% 0.95% 0.45% -0.05% '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 Net Write-offs (Ag) Installments 60+DPD (Ag) -0.05% '95 '98 '01 '04 '07 '10 Net Write-offs (C&F) Installments 60+DPD (C&F) (1) includes Construction; includes Lawn & Grounds Care; beginning in 2009 includes both Ag and Turf equipment; As % of Owned Losses After Dealer Reserve Charges Source: internal reporting, JDCC 10-K filings, 2012 internal reporting 42

43 Resale Value as a % of Original List Price Resale Value as a % of Original List Price U.S. Resale Value vs. Loan Balance 7230R Tractor and S660 Combine 7230R Tractor (1) 110% 100% S660 Combine (2) 110% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 20% Loan Balance 30% 20% Loan Balance 10% 10% 0% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Time Since Origination Model Year 0% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Time Since Origination Model Year (1) In 2011, the 7230R was introduced and replaced the 7830 series. In 2007, the 7830 series was introduced to the market replacing the Loan balance assumes a 30% down payment on the highest list price financed for 5 years with annual payments at a rate of 6.50%. (2) Model S660 replaced model 9670 in Model 9670 replaced Model 9660 in Loan balance assumes a 30% down payment on the highest list price financed for 5 years with annual payments at a rate of 6.50%. Source for equipment values: North American Equipment Dealers Association wholesale prices 43

44 John Deere Power Systems Engine Emissions and Technology

45 Engine Emissions Interim Tier 4 Successful Transition Integrated vehicle solution Meeting customer performance and reliability requirements Nearly 60 applications launched* More than 40,000 engines in the field with >15 million customer hours* Warranty claims on 9.0L engine 33% lower compared to Tier 3 Fuel economy 1-5% better than competitive equipment on tractors with 9.0L engine** * As of 31 October 2012 ** Per Nebraska Tractor Test Laboratory results 45

46 Engine Emissions Final Tier 4 it4 success gives confidence in our ability to meet FT4 challenges Challenge to absorb costs of continuing new emissions technologies SCR introduces packaging and other new challenges DEF freezing can be a concern in colder climates Shorter implementation horizon than it4 More applications to transition to FT4 than past programs Maintain Tier 2 and Tier 3 solutions for global markets 46

47 Engine Emissions Worldwide Emissions Regulations U.S. and Canada Transition to Stage IV/Final Tier 4 > 175 hp: Jan 2014 < 175 hp: Jan 2015 EU27* Transition to Stage IV/Final Tier 4 > 175 hp: Jan 2014 < 175 hp: Oct 2014 Russia Proposed transition to Stage IIIA Jan 2014 China Proposed transition to Stage IIIA Jan Emissions Regulations None Stage II Stage IIIA/Tier 3 Stage IIIB/Interim Tier 4 Brazil Proposed transition to Stage IIIA: Construction Equipment: Jan 2015 Ag Equipment: Jan 2017 India No set date to transition from Stage IIIA * Includes some non-eu27 countries that follow EU27 emissions regulations 47

48 Market Fundamentals

49 $ Billions U.S. Farm Cash Receipts Total cash receipts remain at historically high levels $450 $400 $350 $300 $250 $200 $150 $100 $50 $ F 2013F Government Payments Total Cash Receipts Source: : USDA 11 February F 2013F: Deere & Company Forecast as of 15 May

50 F 2013F $ Billions U.S. Farm Balance Sheet Strong $3,000 30% 28% $2,500 26% $2,000 24% 22% $1,500 20% $1,000 18% 16% $500 14% 12% $0 10% Farm Debt Farm Equity Debt to Equity Ratio (%) Debt to Asset Ratio (%) Source: : USDA 11 February F 2013F: Deere & Company Forecast as of 15 May

51 E 2013P World Farm Fundamentals Global Stocks-To-Use Ratios 90% 80% 70% 60% Cotton 50% 40% 30% 20% 10% Wheat Corn Soybeans 0% Source: USDA - 11 July

52 F 2013F U.S. Housing Starts Housing Starts (Millions of Units) Multi-Family Housing Starts Single-Family Housing Starts Source: : U.S. Census Bureau December F 2013F: Deere & Company Forecast as of 15 May

53 F 2013F Billions, 2005 Chained $ s U.S. Construction Spending 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1, U.S. Construction Spending (Billions, 2005 Chained $ s) Residential Investment in Structures Nonresidential Investment in Structures Government Investment in Structures Government Infrastructure Investment 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% -70% -80% -90% -100% -110% -120% -130% -140% -150% -160% % Total Construction Spend Source: : U.S. Bureau of Economic Analysis December F 2013F: Deere & Company Forecast as of 15 May

54 Appendix

55 2009 OROA* Reconciliation to GAAP Equipment Operations (millions of dollars unless stated otherwise) Equipment Operations 2009, as Reported Exclude Goodwill Impairment & Voluntary Employee- Separation 2009, as Adjusted Net Sales 20,756 20,756 Average Identifiable Assets With Inventories at LIFO 9,647 9,647 With Inventories at Standard Cost 10,950 10,950 Operating Profit 1, ,745 Percent of Net Sales 6.6% 8.4% Operating Return on Assets With Inventories at LIFO 14.1% 18.1% With Inventories at Standard Cost 12.5% 15.9% * OROA: Operating Return on Operating Assets 55

56 SVA* Reconciliation to GAAP Equipment Operations (millions of dollars unless stated otherwise) Equipment Operations Net Sales 5,848 5,723 6,479 7,663 8,830 9,640 11,082 11,926 9,701 11,169 11,077 Average Identifiable Assets With Inventories at LIFO 5,585 5,765 5,449 5,551 6,187 6,502 6,682 7,672 7,724 8,069 8,743 With Inventories at Standard Cost 6,702 6,846 6,442 6,494 7,131 7,488 7,703 8,711 8,739 9,039 9,678 Operating Profit ,006 1,125 1,402 1, (46) Percent of Net Sales 0.3% 1.3% 3.7% 11.1% 11.4% 11.7% 12.6% 12.4% 2.8% 6.2% -0.4% Operating Return on Assets With Inventories at LIFO 0.3% 1.3% 4.4% 15.3% 16.3% 17.3% 21.0% 19.3% 3.5% 8.6% -0.5% With Inventories at Standard Cost 0.2% 1.1% 3.8% 13.0% 14.1% 15.0% 18.2% 16.9% 3.1% 7.7% -0.5% SVA Cost of Assets (804) (821) (773) (780) (856) (898) (924) (1,045) (1,049) (1,085) (1,162) SVA (788) (744) (531) (776) (392) (1,208) Equipment Operations Net Sales 11,703 13,349 17,673 19,401 19,884 21,489 25,803 20,756 23,573 29,466 33,501 Average Identifiable Assets With Inventories at LIFO 6,229 5,965 6,482 7,248 7,546 8,092 9,652 9,647 9,196 11,516 13,594 With Inventories at Standard Cost 7,147 6,925 7,477 8,312 8,634 9,205 10,812 10,950 10,494 12,875 14,965 Operating Profit ,905 1,842 1,905 2,318 2,927 1,365 2,909 3,839 4,397 Percent of Net Sales 3.4% 5.3% 10.8% 9.5% 9.6% 10.8% 11.3% 6.6% 12.3% 13.0% 13.1% Operating Return on Assets With Inventories at LIFO 6.4% 11.9% 29.4% 25.4% 25.2% 28.6% 30.3% 14.1% 31.6% 33.3% 32.3% With Inventories at Standard Cost 5.6% 10.2% 25.5% 22.2% 22.1% 25.2% 27.1% 12.5% 27.7% 29.8% 29.4% SVA Cost of Assets (858) (831) (897) (998) (1,036) (1,094) (1,284) (1,301) (1,259) (1,545) (1,795) SVA (457) (123) 1, ,224 1, ,650 2,294 2,602 * SVA: Shareholder Value Added 56

57 57